A regular meeting of the Board of Directors of Banco de la República took place in the city of Bogotá D.C. on Friday, April 26, 2019. In attendance were Alberto Carrasquilla Barrera, Minister of Finance and Public Credit; Juan José Echavarría, Governor of the Central Bank; and Board Members Gerardo Hernández Correa, Ana Fernanda Maiguashca Olano, José Antonio Ocampo Gaviria, Carolina Soto Losada, and Juan Pablo Zárate Perdomo.
These minutes contain a summary of the outlook on the macroeconomic situation by the technical staff of the Central Bank (section 1), followed by a review of the main discussion regarding monetary policy by the Board of Directors (section 2).
Further detail on the macroeconomic situation prepared by the technical staff from the Central Bank will be presented in the monthly Monetary Policy Report for April 2019 and in the statistical annex (Only Available in Spanish).
1. MACROECONOMIC CONTEXT
In all, observed inflation is somewhat above the target, while the average core inflation indicators remains somewhat below 3.0%. The economic activity continues to recover at a better pace from levels that have been lower than the natural output of the economy. With this, and with the growth estimate for all of 2019, the output gap is expected to continue closing in the rest of the year. Monetary policy actions taken so far should consolidate the convergence of inflation to the target and maintain a favorable path for GDP expansion. Uncertainty on global growth remains high.
2. DISCUSSION AND POLICY OPTIONS
The Board Members emphasized that the average of core inflation indicators did not change in March, and continues below the 3.0% target. Although inflation accelerated this month, the members of the Board considered that, given the composition of this increase and the general dynamics of inflation, this change does not jeopardize reaching the target. On the other hand, inflation expectations continue to be close to the target.
Regarding productive activity, the Board noted that there is no new information to modify their assessment from the previous meeting, characterized by a reactivation of output growth that is still in progress, and due to which GDP is expected to stand at 3.5% in 2019. Some Board Members continue to be concerned about the following issues: (i) the pace at which the reactivation is taking place; (ii) the poor dynamics of the labor market and uncertainty about its drivers; and (iii) the low growth of commercial loans (despite the improvement in risk indicators for the financial system).
As for the external environment, the members of the Board stressed that, despite the news of better growth figures in the United States and China, an environment of lower external demand, wide international liquidity, and high volatility is still expected. With this, the Colombian economy would face neither external funding restrictions nor increases in its risk premia.
In general, the members of the Board agreed on their concern regarding the current account deficit projected for 2019, which is driven by the recovering dynamism of domestic demand and the low growth figures of the country’s trading partners. They highlighted that the composition of the current account and its financing mitigate the external vulnerability to some extent. Two positive elements are the fact that the imports of capital goods and raw materials for productive processes are a dominant factor in the widening of the trade balance deficit, and that funding mainly comes from foreign direct investment.
In the absence of substantial changes within the context of an inflation figure that is very close to the target, an ongoing (albeit slow) GDP growth reactivation, and an international environment that exhibits better liquidity conditions, the Board unanimously decided to maintain the benchmark interest rate at 4.25%, a level they consider moderately expansionist.
3. POLICY DECISION
The Board of Directors unanimously decided to maintain the benchmark interest rate unaltered at 4.25%.
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